Moving from Canada to Illinois: Flat 4.95% Tax, Chicago, and Cross-Border Planning

Illinois charges a flat 4.95% state income tax on all taxable income, with no city income tax in Chicago or anywhere else in the state. Chicago is the third-largest US metro area and draws Canadians for finance (CME Group, Northern Trust, Morningstar), consulting (headquarters for several major firms), tech, and healthcare. The flat rate is higher than Tennessee (0%) or Arizona (2.5%) but lower than New York or California, and the absence of a city tax is a significant difference from New York City. The federal cross-border obligations are the same as any province-to-state move.

How does Illinois compare to Canadian provinces?

Illinois’s flat 4.95% is lower than every Canadian province’s top rate and most provinces’ lowest bracket rate.

Jurisdiction	Top rate	Notes
Ontario	~20.5% (with surtax)	On income above $220,000
BC	20.5%	On income above $252,752
Alberta	15%	On income above $355,845
Quebec	25.75%	On income above $126,000
Illinois	4.95% flat	All taxable income

On $200,000 of employment income, Illinois produces about $9,900 in state tax. Ontario’s provincial tax on the same income would be roughly $15,000 to $18,000 CAD. The gap widens at higher incomes because Ontario’s rates keep climbing while Illinois stays flat.

How does Illinois treat the RRSP?

Illinois starts from federal AGI. The RRSP treaty deferral under Article XVIII keeps the plan’s growth out of federal AGI, so Illinois doesn’t tax it during the deferral period. When you take withdrawals, the distribution is included in federal AGI and flows through to Illinois at the flat 4.95%.

Illinois also has a notable retirement income exemption: distributions from qualified retirement plans (including IRAs, 401(k)s, and pensions) are exempt from Illinois income tax. The key question for RRSP distributions is whether they qualify. The Illinois Department of Revenue has historically treated RRSP distributions reported on the federal return as pension/retirement income, making them eligible for the subtraction. This makes Illinois unusually favorable for Canadian retirees drawing RRSP/RRIF income, because the state effectively zeroes out the tax on those distributions.

TFSA income is taxable federally and flows through to Illinois, but if the TFSA income is classified as investment income (not retirement income), it would not qualify for the retirement subtraction. The recommendation to close the TFSA before leaving Canada still applies.

What about Illinois property taxes?

This is the Illinois catch. Illinois has some of the highest effective property tax rates in the country, particularly in Cook County (Chicago) and the collar counties (DuPage, Lake, Will, Kane, McHenry).

• Cook County (Chicago): effective rates of 1.5% to 2.5% of market value, depending on the neighborhood and assessment appeals
• DuPage County (Naperville, Wheaton): 2.0% to 2.5%
• Lake County (Highland Park, Lake Forest): 2.5% to 3.0%
• Will County (Joliet): 2.5% to 3.0%

Compared to most Ontario municipalities (effective rates of 0.6% to 1.2%), Illinois property taxes are substantially higher. On a $500,000 home in a Chicago suburb, the annual property tax could be $10,000 to $15,000, compared to $3,000 to $6,000 for a comparable home in the GTA.

Illinois does offer homestead exemptions that reduce the assessed value:

• General Homestead Exemption: $10,000 reduction in Cook County, $6,000 elsewhere
• Senior Homestead Exemption: additional $8,000 for homeowners 65+
• Senior Freeze: freezes the assessed value for qualifying seniors with household income under $65,000

What happens on the Canadian side when I leave?

The standard departure sequence:

• Deemed disposition at fair market value of worldwide assets
• Final Canadian return from January 1 to the departure date
• Provincial tax at the rates of your province of residence on departure day
• T1161 and T1243 if applicable
• CRA non-resident notification
• RRSP left open, TFSA closed

What about business in Illinois?

Illinois has a corporate income tax of 7% plus a 2.5% personal property replacement tax, for a combined 9.5% corporate rate. For pass-through entities (S-corps, partnerships, LLCs), the income flows through to the individual return at the 4.95% flat rate, plus the pass-through entity elective tax (PTE tax) option at 4.95% that allows owners to deduct the state tax on the federal return above the $10,000 SALT cap.

If you’re keeping a Canadian corporation while living in Illinois, the US federal reporting (Form 5471, GILTI, Subpart F) applies, and the income flows through to Illinois at the flat rate. If the Canadian corporation has nexus in Illinois (employees, property, or exceeding the economic nexus threshold for sales), it may also be subject to Illinois corporate income tax.

What about estate and inheritance tax?

Illinois has a state estate tax with an exemption of $4 million (not indexed for inflation). Estates above $4 million are taxed at graduated rates from 0.8% to 16%. This is lower than the federal exemption ($13.61 million) and catches more estates, though the threshold is higher than Washington’s $2.193 million. Illinois has no inheritance tax.

For a Canadian becoming an Illinois domiciliary with a combined estate above $4 million, the Illinois estate tax adds a planning layer. The cross-border estate planning guide covers the will structure.

What should I do next?

The Canadian exit follows the standard departure checklist. On the Illinois side, the main planning items are the property tax (which can exceed the state income tax for many homeowners), the retirement income exemption (which makes Illinois unusually good for RRSP/RRIF drawdowns), and the $4 million estate tax threshold.

• Departure tax checklist, the full Canadian exit sequence
• RRSP and TFSA on a US move, federal treatment and reporting
• First US tax return after moving from Canada, the arrival-year mechanics
• Toronto to New York taxes, the higher-tax big-city comparison
• State income tax for cross-border filers, how Illinois compares
• Canada vs US tax rates, the full bracket comparison
• Moving from Canada to Massachusetts, the Boston corridor with a 5% flat rate plus a 4% millionaire’s surtax
• Moving from Canada to Ohio, the nearby Midwest corridor with municipal income taxes
• Moving from Canada to Minnesota, the high-tax Midwest corridor with Fortune 500 headquarters
• Moving from Canada to Wisconsin, the neighboring state with reciprocity and Epic Systems in Madison

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.